Women saving more, borrowing less

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Jun 15, 2012

New retirement planning data for the first quarter of 2012 revealed women increased their deferral rates at twice the level of men, proving women with 401(k) plans are saving more and borrowing less as they prepare for the future. The trend illustrates how more consumers are turning to financial products such as life insurance and annuities to create a source of income in retirement.

The first quarter's data showed women increased their deferral rates by an average of 4 basis points while men averaged 2 basis points. The percentage of participant assets in target date and risk-based options reached an all-time high in the first quarter making up 24.7 percent of total retirement assets under management. Women reportedly favored age-based investments more than risk-based options, with 72 percent investing in age-based products and 28 percent opting for risk-based alternatives. Men were more split, with 53 percent in age-based and 46 in risk-based investments.

The average account balances for women increased 7.9 percent for the first three months of the year, while account balances for men grew 7.2 percent, further closing the gender gap in account balances. The average account balance for women is behind men by 38.8 percent, down from 40.5 percent in the last quarter of 2010.

The retirement savings behavior in the first quarter was also analyzed based on age. The average deferral rate for Generation Y consumers was 3.58 percent, lower than 7.18 percent reported in older consumers. The savings rate for Gen Y, however, was found increasing at an accelerated rate. Consumers under the age of 29 increased their savings levels by 2.29 percent, compared to consumers over the age of 60 who increased by just 0.42 percent. Consumers between 40 and 49 reported the second highest savings level increase of 0.57 percent with an average deferral rate of 5.27 percent. Just 1.3 percent of all consumers decreased their deferral percentage in the first quarter, and only 2.98 percent stopped deferring all together.

The study suggests that more consumers are starting to plan for retirement earlier in life, so as to not outlive their savings and afford adequate healthcare coverage. The Spectrum reported that retirement planning should start around the age of 30, as all decisions made as a young professional can affect the financial situation in the future. It is vital for consumers to continually build savings as they are working so as to avoid hardship in the golden years. Small contributions each month to a savings account or life insurance fund can grow significantly over time to create a monetary safety net to ensure a comfortable retirement for many years.

For example, a recent college graduate and young professional at age 25 can put $5,000 into a tax-sheltered individual retirement account or a 401(k) plan every year for 10 years to accrue $50,000 in savings. If this money is left untouched and not added to after the 10 years with a 10 percent annual return, the portfolio can increase to $1.75 million by the time the consumer reaches retirement age, the Spectrum reported.

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